The Track Manufacturing Company uses the perpetual inventory system for its raw materials inventory. Track plans to include raw material costing \(\$ 2,500,000\) in the products that it manufactures. Henry Track, president of the company, wants to adopt the just-in-time manufacturing philosophy for the raw materials inventory. He wants to have only the raw material needed for the next day's production at the end of each day. The factory operates 250 days each year. Historically, the raw materials inventory balance at the end of the day has averaged \(\$ 55,000\) cost. Track has an annual inventory carrying cost equal to 22 percent of total inventory cost.

Required

a. What is the anticipated annual inventory carrying cost (in dollars) if Track does not adopt the just-in-time manufacturing philosophy?

b. Calculate the average level (in dollars) for the raw materials inventory if Track adopts the just-in-time manufacturing philosophy.

c. Calculate the reduction in the raw materials inventory level and the raw materials inventory annual carrying cost if Track adopts the just-in-time manufacturing philosophy.

d. What other factors or situations should Track consider before deciding to have only one day's supply of material? Consider factors and situations related to environment, supplier problems, labor problems, etc.